Aled Jones

Jane Ambactsheer

Jane Ambachtsheer met with Aled Jones, formerly of the London Pensions Fund Authority, to discuss his past experience and what he is excited about working on in his new role with Mercer.

Aled: Thanks, Jane. Over the years, I’ve gained a variety of experience from working in a range of roles in the responsible investment industry. I have an environmental background, and started my career as an analyst at ESG research firms CoreRatings and Innovest. I then went on to work in fund management, joining the SRI team at Jupiter and then F&C asset management, before I stepped over to the pension fund side.

My first experience with an asset owner was at the Pension Protection Fund (PPF), which is an insurance scheme for corporate funds that are left underfunded as a result of their sponsor becoming insolvent. In fact, I joined the PPF at an interesting time. The run on Northern Rock had just begun and we were right at the beginning of the financial crisis. At the time I was there, PPF had only recently been set up and was in the early years of developing an RI strategy. Approximately 90% of assets were allocated to government bonds, which meant limited opportunities on the RI side. However, today PPF is a quite different institution with investments across a range of asset classes and growing RI experience.

Most recently, working at the £4.2bn London Pensions Fund Authority (LPFA) provided experience in managing RI at a mature fund with an established reputation in this field. At LPFA, the RI role now represents 25% of the entire investment resource, which is a good indication of how seriously the Fund takes it.

The LPFA is a recognised leader on RI in the UK and I was keen to maintain that reputation. It was a challenge though as you’re dealing with multiple asset classes and many external fund managers and all the while trying to build a consistent and sensible strategy.

As a result the role was really interesting and I learnt a great deal, much of which I can apply in the role at Mercer. For example, the underlying issues are generally the same (governance, risk management, transparency etc.), and you just need to think laterally when applying them to different asset classes.

Due to the LPFA’s industry-leading position in environmental and social investments I was also excited to work closely with our alternatives manager looking at opportunities in cleantech, waste management and long-term thematic equities.

Jane: What is it that has led you to take on a new challenge, and join the consulting industry?

Aled: Having worked in research, fund management and asset owner organisations I have a fairly unique perspective on the industry and in particular of the practical side of integrating ESG considerations in the investment process. With increasing numbers of pension funds getting to grips with RI I am really keen to bring that knowledge – of the tools, processes and other implementation mechanisms – to Mercer’s global RI team and client base. For example, in the UK, there are many small and medium size pension funds that haven’t really looked at ESG or active ownership in any depth, partly because their resource constraints don’t allow it – I’d like to bring solutions which help them to meet their fiduciary obligations in a sensible, effective and cost-efficient way.

Aled: I agree that this is an area with a lot of opportunity, and that consolidation could significantly reduce fund management, intermediary and other costs. However, I don’t envision things changing quickly, at least not in the local authority world. For the Local Government Pension Scheme (LGPS) consolidation is a highly political issue given that virtually all other schemes are attached to a local authority and are therefore overseen by elected officials. Consolidation in the LGPS would involve jobs being either lost or transferred to a different location. The technical side of consolidating these schemes would also be high, in terms of the actuarial, administration and other investment work required.

As a result, firms like Mercer have an opportunity to help smaller funds overcome the barriers that size presents in regards to the governance of ESG and ownership issues. This is particularly important for smaller funds in the UK market due to the expectations that exist as a result of the Stewardship Code.

Mercer can help by providing tools which assess stewardship activities by fund managers that can slot into “normal” monitoring activities.
 

Aled: It is a very mixed picture and depends on the market. Many large pension funds and fund managers are aware of the importance of climate change and the need to build understanding around the issue. For example, the LPFA - alongside a number of other European funds - is actively involved in the Institutional Investors Group on Climate Change (IIGCC). However, if you are looking more broadly across pension funds, I think that the issue has been dropping down on the priority list more recently. When the IIGCC was established we saw a flurry of interest but it has recently gone a little bit quiet. I am hoping that this is just a temporary dip resulting from the more acute issues pressing for attention right now.

Another problem is that the public debate in the UK is becoming more politicised, a bit like it is in the US where views seem to be informed by ideology instead of scientific evidence. This is worrying to say the least.

Aled: Yes that is partly true but I think investors struggle with the issue. It’s one thing to acknowledge the problem of climate change but another to know how to adjust to it today in terms of valuation models (if you’re an analyst) or investment strategy (if you’re a trustee). It doesn’t help that we increasingly see high profile commentators playing on the inherent uncertainty of scientific evidence to question if climate change is really happening.

The thing to remember is that despite all this, there are some great investment opportunities tapping into the climate/energy and related themes that are already delivering good returns. The LPFA was an early adopter in this area and as a result is already benefiting from the investments it has made in recent years.

However, this isn’t the case in many other funds. A major constraint is that you really need internal expertise – to know what the issues are and where to find and how to properly assess the risks and opportunities. It also helps to have support from a well-informed consultant!

The LPFA currently has 7% of its total assets invested in what I’d call ‘pure’ ESG themes (e.g. clean tech, sustainable forestry, environmental infrastructure). It rises to around 10% if you include mandates where ESG factors are integrated more broadly, such as SRI funds or its property fund of funds. The point is that there is a lot of opportunity out there.

Aled: There were a few big draws for me in joining Mercer. First, it’s obviously a massive industry player in the UK and elsewhere, so in terms of being able to have influence, this was important. But the real draw was the opportunity to work with Mercer’s global RI team. There are so many great people in the group, and together you’ve played a role in so many of the seminal developments in our field. I am really looking forward to getting to know everyone, and to being a part of the team!

Jane: Thanks, Aled. We’re glad to have you!